Parsing Google’s Energy Innovation Report

This morning, Google made a splash with a new report that makes some big claims about the potential impacts of energy innovation. The report starts with “aggressive” assumptions about clean technology cost breakthroughs and domestic policy choices relative to business-as-usual, and models the consequences for jobs, GDP, and emissions using McKinsey’s Low Carbon Economy Tool. They use 13 different scenarios in all, with varying assumptions about energy tech innovation, policy choices, and the price of natural gas and commodities. According to their analysis, the best results come from a mix of radical innovations coupled with a broad package of policies to accelerate adoption and efficiency. Quoting the executive summary:

Our modeling indicates that, when compared to BAU in 2030, aggressive energy innovation alone could have enormous potential to simultaneously:

Grow the US economy by over $155 billion in GDP/year ($244 billion with Clean Policy)

Create over 1.1 million new net jobs (1.9 million with Clean Policy)

Save US consumers over $942/household/year ($995 with Clean Policy)

Reduce US oil consumption by over 1.1 billion barrels/year Reduce US total greenhouse gas emissions

(GHG) by 13% (21% with Clean Policy)

By 2050, innovation in the modeled technologies alone reduced GHG emissions 55% and 63% when combined with policy, while continuing positive economic and job growth. This analysis indicates that aggressive clean energy innovation could simultaneously help address the US’ major long-term economic, environmental, and security goals.

I’m including the numbers above to provide a sense of the scale they’re dealing with. The thing about reports that rely on far-reaching projections is that they’re sensitive to the assumptions plugged into them, and that’s no less the case here. For example, they ignore the role of biofuels in transportation, and assume all the needed transmission gets built. Needless to say, a breakthrough in low-carbon biofuels or more constrained availability of transmission would have big impacts on the ultimate outcomes, and the numbers above. So it’s best to take the report as aspirational. As Google’s Bill Weihl told the New York Times:

“This is not a prediction of what will happen,’’ Mr. Weihl said. He described it more as an exploration of what benefits would accrue from breakthroughs in various areas — “What are the things we should aim for?”

Of course, the big, obvious catch is that Google makes some fairly substantial assumptions about energy costs. Some of these are quite aggressive indeed. For example, under Google’s assumptions, onshore wind costs decline by more than 50 percent by 2050 – twice as much as the IEA has predicted. The assumptions for solar PV, CCS, and the other technologies are at least as aggressive – some would say unrealistic.

But the efficacy of these assumptions are not the point of the report, nor does it mean the report doesn’t have value: it makes clear the enormous upside, economically and environmentally, of spurring breakthrough clean technologies — so long as we get both the technology and the policy right. It’s not a question of either/or. Any efforts to mitigate emissions that don’t seek to accelerate energy innovation will likely end in failure, and miss an economic opportunity. Under Google’s model, neither the application of a $30 per ton carbon price nor a more robust set of policies and mandates to drive cleantech adoption reduced emissions as effectively on their own as when they were coupled with breakthrough innovations to drive cost declines. It’s a similar finding we published in a report a few months ago. And relying on these policies without also driving technology would lead to slower growth relative to the innovation approach. In terms of outcomes, the best policy mix thus appears to be one that incorporates an urgent push for radical technological innovation with a broad batch of policies. Without innovation, it becomes increasingly hard to balance emissions reductions and fossil fuel displacement with economic gains over time.

That still leaves the big question as to how to actually achieve these cost declines. Unfortunately, the report doesn’t get into this, the most important question of all. (For one answer, see Bill Bonvillian’s recent piece, “Climate Plan B”). But by establishing technology costs as the fundamental driver of success or failure, it’s pushing the right conversation.

The report also makes clear that the pace of innovation matters. Google calls the current cleantech challenge an “innovation arms race,” with the best technology winning greater market share. Delaying efforts to accelerate innovation means missing out on the economic upside – or opening the door for further entrenchment of natural gas, which could crowd out newer, cleaner technologies later.

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